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FinanceQ&A LibraryValuation of Future Cash FlowsPART 3award to cover the following: (a) The present value of two years' back pay.The plaintiff's annual salary for the last two years would have been $44,000and $47,000, respectively. (b) The present value of five years' future salary.You assume the salary will be $51,000 per year. (c) $200,000 for pain andsuffering. (d) $25,000 for court costs. ASsume that the salary payments areequal amounts paid at the end of each month. If the interest rate you chooseis an EAR of 7 percent, what is the size of the settlement? If you were theplaintiff, would you like to see a higher or lower interest rate?59. Calculating EAR with Points You are looking at a one-year loan of$15,000. The interest rate is quoted as 12 percent plus two points. A pointonloan is 1 percent (one percentage point) of the loan amount. Quotessimilar to this one are common with home mortgages. The interest ratequotation in this example requires the borrower to pay two points to thelender up front and repay the loan later with 12 percent interest. What ratewould you actually be paying here?LO 460. Future Value and Multiple Cash Flows An insurance company is offeringa new policy to its customers. Typically, the policy is bought by a parent orgrandparent for a child at the child's birth. The details of the policy are asfollows: The purchaser (say, the parent) makes the following six payments tothe insurance company:LO 1First birthday:Second birthday:Third birthday:Fourth birthday:Fifth birthday:Sixth birthday:$ 800$ 800$ 900$ 900$1,000$1,000After the child's sixth birthday, no more payments are made. When the childreaches age 65, he or she receives $150,000. If the relevant interest rate is10 percent for the first six years and 5.75 percent for all subsequent years,is the policy worth buying?.1 Annuity Future Value The Federal Reserve Bank of St. Louis has files listingistorical interest rates on its website www.stlouisfed.org. Find the link for "FREDFederal Reserve Economic Data). You will find listings for Moody's Seasoned Aaaorporate Bond Yield and Moody's Seasoned Baa Corporate Bond Yield. (These ratese discussed in the next chapter.) If you invest $2,000 per year for the next 40 years ate most recent Aaa yield, how much will you have? What if you invest the same amountQuestion

Asked Nov 4, 2019

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Step 1

**Calculation of future value of payments:**

**Answer**:

Future value of payments is **$185,360.20; **the policy is not worth buying.

Step 2

**Excel workings:**

Step 3

**Excel spread sheet:**

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